Income Tax Expense

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Tax Expense

Income Tax Expense

The summary of the income tax expense for the years ended December 31, 2023, 2022, and 2021 is as follows (dollars in thousands):

	Years Ended December 31,
	2023		2022		2021
Current
Federal	$	20,772	$	17,515	$	16,606
State	6,395		8,846		8,196
Deferred
Federal	(21,351)		(6,802)		(1,651)
State	(4,363)		(19,527)		(3,400)
Total income tax expense	$	1,453	$	32	$	19,751

A reconciliation of income tax expense at the U.S. federal statutory income tax rate to annual income tax expense at the Company's effective tax rate is as follows (dollars in thousands):

	Years Ended December 31,
	2023		2022		2021
Income tax expense computed at U.S. federal statutory income tax rate	$	581	$	12,756	$	15,367
State income taxes	(330)		(3,198)		3,088
Permanent items	3,028		399		1,465
Research and development credits	(1,117)		237		(1,016)
Uncertain income tax position	(2,529)		(1,992)		(314)
Change in valuation allowance	1,267		(8,626)		250
Other	553		456		911
Income tax expense	$	1,453	$	32	$	19,751

The significant components of the Company's deferred income tax assets (liabilities) are as follows (dollars in thousands):

	As of December 31,
	2023		2022
Deferred tax assets:
Net operating loss carryforwards	$	101,325	$	112,516
Accrued product returns and rebates	22,150		23,300
Accrued compensation and stock based compensation	15,613		15,422
Capitalized research and development	29,953		13,926
Operating lease liability	10,374		10,821
Other	12,755		18,486
Total deferred tax assets	192,170		194,471
Less: valuation allowance	(60,866)		(59,598)
Total deferred tax asset, net of valuation allowance	131,304		134,873
Deferred tax liabilities:
Intangibles	(144,327)		(171,113)
Operating lease assets	(7,251)		(7,338)
Other	(4,689)		(6,231)
Total deferred tax liabilities	(156,267)		(184,682)
Net deferred tax liabilities	$	(24,963)	$	(49,809)

In assessing the realizability of deferred income tax assets, the Company considers whether it is more-likely-than-not that some or all of the deferred income tax assets will not be realized. The ultimate realization of the deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the net operating loss (NOL) and tax credit carryforwards are available. The Company considers projected future taxable income, the scheduled reversal of deferred income tax liabilities, and available tax planning strategies that can be implemented by the Company in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the NOL and credit carryforwards are available to reduce income taxes payable, management had determined it is not more-likely-than-not to realize all such net deferred tax assets.

A reconciliation of the deferred asset valuation allowance is as follows (dollars in thousands):

	Years Ended December 31,
	2023		2022		2021
Beginning balance	$	59,598	$	70,529	$	582
Acquisition Accounting (1)	—		(2,305)		69,697
Additions	1,268		435		250
Deductions	—		(9,061)		—
Ending balance	$	60,866	$	59,598	$	70,529

(1) Amount comprised principally of acquisitions and purchase accounting adjustments in connect with acquisitions

The Company recorded a valuation allowance addition of $1.3 million for the year ended December 31, 2023. The valuation allowance is primarily related to federal and state net operating losses carryforwards acquired from the Adamas Acquisition that are not expected to be realizable in the future.

The Company has NOL carryforwards in several jurisdictions. Due to changes in the Company's ownership, the utilization of net operating loss carryforwards that can be used to offset future taxable income are subject to annual limits in accordance with Internal Revenue Code (IRC) provisions, as well as similar state provisions. In addition, states may also impose other future limitations through state legislation or similar measures. Despite the NOL carryforwards, the Company may incur higher state income tax expense in the future.

As of December 31, 2023, the U.S. federal and state NOL carryforwards amounted to approximately $374.0 million and $489.9 million, respectively, which will expire in various years beginning in 2031. For the year ended December 31, 2023, the Company utilized federal NOLs of approximately $42.6 million and state NOLs of approximately $25.7 million.

The Company is no longer subject to U.S. Federal income tax examinations for years prior to 2020. Operating loss or tax credit carryforwards generated prior to 2020 may be subject to tax audit adjustment.

The Company accounts for uncertain income tax positions pursuant to the guidance in ASC Topic 740, Income Taxes. The Company recognizes interest and penalties related to uncertain tax positions, if any, in income tax expense. Some uncertain income tax position liabilities have been recorded against the Company's deferred income tax assets to offset such tax attribute carryforwards and other positions that cannot be offset by tax attributes until liability has been booked.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (dollars in thousands):

	Years Ended December 31,
	2023		2022		2021
Balance as of January 1	$	4,323	$	6,100	$	5,881
Gross increases related to current year tax positions	112		32		898
Gross increases related to prior year tax positions	9		—		—
Gross decreases related to prior year tax positions	—		(39)		(363)
Lapse of statute of limitations	(2,295)		$	(1,770)	(316)
Balance as of December 31	$	2,149	$	4,323	$	6,100

The Company does not anticipate a material impact to the financial statements in the next 12 months as a result of uncertain tax positions and expiring statutes of limitation.